IFRS And GAAP Accounting Quiz: Test

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  • 1/86 Questions

    IFRS and US GAAP generally agree with their overall framework and purpose, but which body requires users to consider the framework in the absence of a specific standard?

    • US GAAP only
    • IFRS only
    • Both IFRS and US GAAP
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About This Quiz

This IFRS and GAAP Accounting Quiz assesses knowledge on differences between IFRS and US GAAP, focusing on frameworks, financial reporting standards, and specific accounting treatments. Ideal for professionals and students in accounting to understand key distinctions and compliance requirements.

IFRS And GAAP Accounting Quiz: Test - Quiz

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  • 2. 

    Which body distinguishes between objectives for the business and non-business entities?

    • IFRS

    • US GAAP

    Correct Answer
    A. US GAAP
    Explanation
    US GAAP (Generally Accepted Accounting Principles) is the body that distinguishes between objectives for the business and non-business entities. US GAAP provides guidelines and standards for financial reporting for both business and non-business entities, ensuring that they follow the appropriate accounting principles and present their financial information accurately and consistently. IFRS (International Financial Reporting Standards) is another accounting framework that is used globally, but it does not specifically distinguish between objectives for business and non-business entities.

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  • 3. 

    What are the two main financial reporting standard-setting bodies?

    • IFRS and US GAAP

    • IASB and FASB

    • SEC and FSA

    Correct Answer
    A. IASB and FASB
    Explanation
    IFRS and GAAP are sets of actual accounting standards. SEC and FSA (Financial Services Authority, basically the UK's SEC) are regulatory authorities.

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  • 4. 

    Which framework gives more emphasis on the importance of accrual and going concern assumptions?

    • FASB (US GAAP)

    • IASB (IFRS)

    Correct Answer
    A. IASB (IFRS)
    Explanation
    IASB framework gives more emphasis to the importance of the accrual and going concern assumptions than the FASB framework does.

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  • 5. 

    A company reporting under standards other than US GAAP that trade in US markets MUST reconcile their statements with US GAAP.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Companies reporting under standards other than US GAAP that trade in US markets must reconcile their financial statements with US GAAP. This is because US markets require companies to provide financial information that is consistent and comparable, and US GAAP is the standard used in the United States. Reconciling their statements ensures that investors and stakeholders have access to accurate and reliable financial information.

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  • 6. 

    Which body allows extraordinary items?

    • IFRS only

    • US GAAP only

    • Both

    Correct Answer
    A. US GAAP only
    Explanation
    IFRS DOES NOT ALLOW EXTRAORDINARY ITEMS Remember that Extraordinary Items (both unusual and infrequent) are reported below income from continuing operations, net of tax.

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  • 7. 

    Extraordinary items are not expected to continue in future periods.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Remember, they are only allowed under US GAAP, but even still, they are not expected to continue in future periods. It should be a one time thing.

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  • 8. 

    Under US GAAP, dividends paid are

    • Operating Cash Flows

    • Investing Cash Flows

    • Financing Cash Flows

    • A or C

    Correct Answer
    A. Financing Cash Flows
    Explanation
    Under US GAAP, dividends PAID are FINANCING CASH FLOWS. Dividends received are operating cash flows.

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  • 9. 

    Under US GAAP, dividends received are

    • Operating Cash Flows

    • Investing Cash Flows

    • Financing Cash Flows

    • A or B

    Correct Answer
    A. Operating Cash Flows
    Explanation
    Under US GAAP, dividends PAID are financing cash flows. Dividends received are OPERATING cash flows.

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  • 10. 

    Under US GAAP, interest paid or received is what type of cash flow?

    • Operating

    • Investing

    • Financing

    • It depends on whether the interest is paid or received

    Correct Answer
    A. Operating
    Explanation
    regardless of whether it's interest paid or interest received, interest is classified as an OPERATING cash flow under US GAAP

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  • 11. 

    In some cases, interest can be an investing or financing cash flow under US GAAP

    • True

    • False

    Correct Answer
    A. False
    Explanation
    under US GAAP, interest is ALWAYS an OPERATING cash flow.

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  • 12. 

    Under US GAAP, dividends received can be considered financing cash flows.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Under US GAAP, dividends received are OPERATING cash flows.

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  • 13. 

    Under US GAAP, dividends paid are operating cash flows

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Under US GAAP, dividends paid are FINANCING cash flows!

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  • 14. 

    Under IFRS, dividends paid are reported as what type of cash flow?

    • Operating only

    • Financing only

    • Investing only

    • Operating or Financing

    • Operating or Investing

    • Financing or Investing

    Correct Answer
    A. Operating or Financing
    Explanation
    Under IFRS, dividends paid can be reported as either operating or financing cash flows

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  • 15. 

    Under IFRS, interest paid is reported as what type of cash flow?

    • Operating only

    • Financing only

    • Investing only

    • Operating or Financing

    • Operating or Investing

    • Financing or Investing

    Correct Answer
    A. Operating or Financing
    Explanation
    Under IFRS, interest paid can be reported as either operating or financing cash flows.

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  • 16. 

    Under IFRS, interest received is reported as what type of cash flow?

    • Operating only

    • Financing only

    • Investing only

    • Operating or Financing

    • Operating or Investing

    • Financing or Investing

    Correct Answer
    A. Operating or Investing
    Explanation
    Under IFRS, interest received can be reported as either operating or investing cash flows.

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  • 17. 

    Under IFRS, dividends received are reported as what type of cash flow?

    • Operating only

    • Financing only

    • Investing only

    • Operating or Financing

    • Operating or Investing

    • Financing or Investing

    Correct Answer
    A. Operating or Investing
    Explanation
    Under IFRS, dividends received can be reported as either operating or investing cash flows.

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  • 18. 

    Under IFRS, taxes paid are always operating cash flows.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Under IFRS, taxes paid are operating cash flows except when they arise from an investing or financing transaction.

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  • 19. 

    Under both IFRS and US GAAP, research costs are expensed as incurred. But under which body are the development costs capitalized?

    • IFRS

    • US GAAP

    • Both A and B

    Correct Answer
    A. IFRS
    Explanation
    US GAAP requires both research AND development costs to be expensed as incurred. IFRS requires research costs to be expensed but development costs can be capitalized.

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  • 20. 

    Component depreciation, a method in which significant parts of an asset are identified and depreciated separately, is required under what body?

    • IFRS

    • US GAAP

    • Both A and B

    • Neither body requires component depreciation

    Correct Answer
    A. IFRS
    Explanation
    IFRS requires component depreciation.

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  • 21. 

    Which body gives firms the option to revalue assets based on fair value under the revaluation model?

    • IFRS

    • US GAAP

    Correct Answer
    A. IFRS
    Explanation
    Under IFRS, assets may be revalued upward to fair value. Gains reversing previous writedowns are reported on the income statement, and any excess gains are taken as an adjustment to equity in an account called REVALUATION SURPLUS.

    Under US GAAP, long lived assets cannot be revalued upward, except that held-for-sale assets can be revalued upward to the extent of previous impairment writedowns.

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  • 22. 

    Which body uses UNDISCOUNTED cash flows to determine whether or not an asset is impaired?

    • IFRS

    • US GAAP

    • Both A and B

    Correct Answer
    A. US GAAP
    Explanation
    Under US GAAP, an asset is impaired if its carrying value is greater than the asset's UNDISCOUNTED future cash flows. If impaired, the asset is written down to fair value. Subsequent recoveries are not allowed for assets held-for-use.

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  • 23. 

    Under *******, an asset is impaired when its carrying value exceeds the recoverable amount. The recoverable amount is the greater of fair value less selling costs and the value in use (PV of expected cash flows).

    • IFRS

    • US GAAP

    • Both A and B

    Correct Answer
    A. IFRS
    Explanation
    Under IFRS, the asset is impaired if its worth less than what the firm could sell it for less selling costs or worth less than the PV of its expected future cash flows (value-in-use).

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  • 24. 

    Under *******, an asset is impaired if its carrying value is greater than the asset's undiscounted future cash flows.

    • IFRS

    • US GAAP

    • Both A and B

    Correct Answer
    A. US GAAP
    Explanation
    Under US GAAP, an asset is impaired if its carrying value is greater than the asset's undiscounted future cash flows. This means that if the asset's value on the balance sheet is higher than the expected cash flows it will generate in the future, it is considered impaired. This impairment is recognized by reducing the carrying value of the asset and recording a loss on the income statement. This is in contrast to IFRS, where the impairment test is based on the asset's recoverable amount, which is the higher of its fair value less costs to sell and its value in use.

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  • 25. 

    Under IFRS, if an asset is impaired, it is written down to:

    • The recoverable amount

    • Fair value

    Correct Answer
    A. The recoverable amount
    Explanation
    Under IFRS (International Financial Reporting Standards), when an asset is impaired, it is written down to its recoverable amount. The recoverable amount refers to the higher of an asset's fair value less costs to sell and its value in use. This means that the asset is adjusted to its estimated future cash flows, taking into consideration the time value of money. Writing down the asset to its recoverable amount ensures that the carrying value of the asset on the balance sheet reflects its true economic value.

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  • 26. 

    Under US GAAP, if an asset is impaired, it is written down to:

    • The recoverable amount

    • Fair value

    Correct Answer
    A. Fair value
    Explanation
    Under US GAAP, if an asset is impaired, it is written down to fair value. This means that the value of the impaired asset is adjusted to reflect its current market value. Fair value represents the price at which the asset could be sold in an orderly transaction between market participants. Writing down the asset to fair value ensures that the financial statements provide a more accurate representation of the asset's value, taking into consideration any decrease in its value due to impairment.

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  • 27. 

    Under *******, loss recoveries are permitted as long as they aren't above historical cost. Under *******, loss recoveries are not allowed for assets held-for-use.

    • IFRS / US GAAP

    • US GAAP / IFRS

    • US GAAP / neither body

    Correct Answer
    A. IFRS / US GAAP
    Explanation
    Under IFRS and US GAAP, loss recoveries are permitted as long as they aren't above historical cost. This means that if an asset's value decreases and then later increases back to its historical cost, the recovery of the loss can be recognized in financial statements. However, under IFRS and US GAAP, loss recoveries are not allowed for assets held-for-use. This means that if an asset is being used in the normal course of business, any loss recovery cannot be recognized in financial statements.

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  • 28. 

    Impairments can affect cash flow.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Asset impairments result in losses in the income statement, but they have NO IMPACT ON CASH FLOW since there is no tax or other cash flow effects until the asset is actually disposed of.

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  • 29. 

    Generally speaking, IFRS and US GAAP have similar accounting treatment of income taxes. However, while ******* prohibits upward revaluations, ******* allows upward revaluations and any resulting effects on deferred tax are recognized in equity.

    • IFRS / US GAAP

    • US GAAP / IFRS

    Correct Answer
    A. US GAAP / IFRS
    Explanation
    US GAAP allows upward revaluations and any resulting effects on deferred tax are recognized in equity, while IFRS prohibits upward revaluations. This means that under US GAAP, if there is an increase in the value of an asset, it can be revalued upwards and any resulting effects on deferred tax will be recognized in equity. However, under IFRS, upward revaluations are not allowed, so any increase in the value of an asset will not impact the deferred tax and will not be recognized in equity.

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  • 30. 

    ***** is more rules-based. ***** is more principle-based.

    • IFRS / US GAAP

    • US GAAP / IFRS

    Correct Answer
    A. US GAAP / IFRS
    Explanation
    For example, when an asset is leased both IFRS and US GAAP require the lessee to treat it as a finance lease if most of the ownership is being absorbed by the lessee. However, since US GAAP has a rules-based approach, there are specific criteria given to help determine this. IFRS is more subjective.

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  • 31. 

    The difference between the defined benefit obligation and the plan assets is referred to as the funded status of the plan. Under ******, the funded status is reported on the balance sheet. An overfunded amount is reported as an asset, while an underfunded amount is reported as a liability.

    • IFRS

    • US GAAP

    • Both A and B

    Correct Answer
    A. US GAAP
    Explanation
    The explanation for the given correct answer is that under US GAAP, the funded status of a plan, which is the difference between the defined benefit obligation and the plan assets, is reported on the balance sheet. An overfunded amount is reported as an asset, indicating that there are more plan assets than the obligation, while an underfunded amount is reported as a liability, indicating that there are not enough plan assets to cover the obligation. This reporting treatment is specific to US GAAP and differs from IFRS.

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  • 32. 

    Under *****, firms remove the unrecognized actuarial gains and losses and unrecognized prior service cost from the funded status. The result is a balance sheet that doesn't represent economic reality.

    • IFRS

    • US GAAP

    • Both A and B

    Correct Answer
    A. IFRS
    Explanation
    Under IFRS (International Financial Reporting Standards), firms remove the unrecognized actuarial gains and losses and unrecognized prior service cost from the funded status. This means that these elements are not included in the balance sheet, resulting in a balance sheet that does not accurately reflect the economic reality of the firm.

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  • 33. 

    Under *******, firms separately disclose the components of the benefit obligation, plan assets, and pension expense. In addition, firms disclose the assumptions used to calculate pension expense, such as discount rate, the compensation growth rate, and the expected rate of return on plan assets.

    • IFRS

    • US GAAP

    • Both A and B

    Correct Answer
    A. Both A and B
    Explanation
    Under both IFRS and US GAAP, firms are required to separately disclose the components of the benefit obligation, plan assets, and pension expense. Additionally, both standards require firms to disclose the assumptions used to calculate pension expense, such as the discount rate, the compensation growth rate, and the expected rate of return on plan assets. Therefore, the correct answer is both A (IFRS) and B (US GAAP).

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  • 34. 

    Which method is used when the investor can significantly influence the investee? (between 20%-50% ownership interest)

    • Consolidation Method

    • Equity Method

    • It depends on whether the firm uses IFRS or US GAAP

    Correct Answer
    A. Equity Method
    Explanation
    The equity method is used when the investor can significantly influence the investee, typically with a 20%-50% ownership interest. This method allows the investor to account for its investment in the investee by recognizing its share of the investee's profits or losses in its own financial statements. It is commonly used when the investor has significant influence over the investee's operating and financial policies, but not control. The consolidation method, on the other hand, is used when the investor has control over the investee, typically with ownership interest of more than 50%. The choice between the two methods is not dependent on IFRS or US GAAP.

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  • 35. 

    Which method is used when the investor can control the investee? (greater than 50% ownership interest)

    • Consolidation Method

    • Equity Method

    • It depends on whether the firm uses IFRS or US GAAP

    Correct Answer
    A. Consolidation Method
    Explanation
    The correct answer is Consolidation Method. When an investor has greater than 50% ownership interest in an investee, they have control over the investee. In such cases, the Consolidation Method is used to account for the investment. This method involves combining the financial statements of the investor and the investee, as if they were one entity. It allows the investor to reflect their control over the investee and present a comprehensive view of the combined financials.

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  • 36. 

    In the case of business combinations with joint control, the proportionate consolidation method is preferred under ****** but the equity method is required under *******.

    • IFRS/ US GAAP

    • US GAAP / IFRS

    Correct Answer
    A. IFRS/ US GAAP
    Explanation
    Proportionate consolidation is NOT ALLOWED UNDER US GAAP

    IFRS prefers Proportionate Consolidation in this case, but the equity method could also be used.

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  • 37. 

    Held-for-trading securities are reported on the balance sheet at:

    • Fair value

    • Amortized cost

    • Unamortized cost

    Correct Answer
    A. Fair value
    Explanation
    Held-for-trading securities are reported on the balance sheet at FAIR VALUE and any unrealized gains and losses are recognized in the income statement.

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  • 38. 

    If the fair value of a held-to-maturity security increases substantially, the fair value is adjusted on the balance sheet.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    NO! they are reported at their amortized cost. Subsequent changes in fair value are ignored unless the security is sold or otherwise disposed of.

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  • 39. 

    Held-to-maturity securities are reported on the balance sheet at:

    • Fair value

    • Amortized cost

    • Unamortized cost

    Correct Answer
    A. Amortized cost
    Explanation
    Held-to-maturity securities are recognized on the balance sheet at AMORTIZED COST. Amortized cost is equal to the face (par) value less any unamortized discount or plus any unamortized premium.

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  • 40. 

    Available-for-sale securities are reported on the balance sheet at:

    • Fair value, but not reported on the income statement until sold

    • Fair value, and unrealized gains/losses are recognized on the income statement

    • Fair value, and any unrealized gains/losses are reported as other comprehensive income

    Correct Answer
    A. Fair value, and any unrealized gains/losses are reported as other comprehensive income
    Explanation
    Available-for-sale securities are reported on the balance sheet at fair value, which means their current market value. However, any unrealized gains or losses on these securities are not immediately recognized on the income statement. Instead, they are reported as other comprehensive income, which is a separate section on the financial statements. This treatment allows investors and analysts to see the true value of the securities on the balance sheet while also providing transparency regarding any changes in value that have not yet been realized through a sale.

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  • 41. 

    Under *******, inventory is reported on the balance sheet at the lower of cost or net realizable value. Under *******, inventory is reported on the balance sheet at the lower of cost or market value. Inventory can be recovered subsequent to a writedown under *******

    • IFRS / US GAAP / IFRS OR US GAAP

    • US GAAP / IFRS / IFRS ONLY

    • IFRS / US GAAP / IFRS ONLY

    Correct Answer
    A. IFRS / US GAAP / IFRS ONLY
    Explanation
    Remember that when it comes to inventory, US GAAP tends to be more conservative.

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  • 42. 

    Under ******, the value of property and equipment and identifiable intangible assets can be revalued upward, but under ******* they cannot.

    • IFRS / US GAAP

    • US GAAP / IFRS

    Correct Answer
    A. IFRS / US GAAP
    Explanation
    Under IFRS (International Financial Reporting Standards), the value of property and equipment and identifiable intangible assets can be revalued upward. This means that if the fair value of these assets increases, the company can choose to increase their carrying value on the balance sheet. On the other hand, under US GAAP (Generally Accepted Accounting Principles), revaluation of property and equipment and identifiable intangible assets is generally not allowed. This means that the carrying value of these assets will remain at their original cost, unless there is an impairment that requires a write-down.

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  • 43. 

    IFRS does not allow extraordinary items but US GAAP does.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Under IFRS (International Financial Reporting Standards), the concept of extraordinary items has been eliminated. Extraordinary items refer to events or transactions that are both unusual and infrequent, and their inclusion in financial statements could distort the overall financial performance of a company. On the other hand, US GAAP (Generally Accepted Accounting Principles) still allows for the recognition of extraordinary items. This difference in treatment between IFRS and US GAAP regarding extraordinary items is why the statement "IFRS does not allow extraordinary items but US GAAP does" is true.

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  • 44. 

    When a firm reporting under US GAAP cannot reliably estimate the outcome of a project, it must use the:

    • Completed contract method

    • Cost recovery method

    Correct Answer
    A. Completed contract method
    Explanation
    When a firm reporting under US GAAP cannot reliably estimate the outcome of a project, it must use the completed contract method. This method recognizes revenue and expenses only when the project is completed, rather than recognizing them over the course of the project. This is because the firm cannot accurately determine the financial impact of the project until it is finished. By using the completed contract method, the firm can avoid making unreliable estimates and ensure that the financial statements reflect the actual outcome of the project.

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  • 45. 

    IFRS prohibits the use of the completed contract method and instead employs the cost recovery method.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    When the outcome of a project cannot be reliably estimated, IFRS requires the cost recovery method - revenue is recognized to the extent of contract costs and profit is only recognized at project completion.

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  • 46. 

    Interest on a construction project must be capitalized under...

    • IFRS

    • US GAAP

    • Both A and B

    • Not required under either body

    Correct Answer
    A. Both A and B
    Explanation
    both IFRS and US GAAP require interest on a construction project to be capitalized.

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  • 47. 

    Discountinued operations are treated differently under IFRS and US GAAP

    • True

    • False

    Correct Answer
    A. False
    Explanation
    IFRS and US GAAP treat discontinued operations the same way.

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  • 48. 

    Under ******, impairment must be tested annually.

    • IFRS

    • US GAAP

    • Both A and B

    Correct Answer
    A. IFRS
    Explanation
    Under IFRS, the firm must annually asses whether events or circumstances indicate an impairment of the asset's value has occurred.

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  • 49. 

    Under ******, an asset is tested for impairment only when events and circumstances indicate the firm may not be able to recover the carrying value through future use.

    • IFRS

    • US GAAP

    • Both A and B

    • None of the above

    Correct Answer
    A. US GAAP
    Explanation
    Remember that under US GAAP determining the impairment will potentially involve 2 steps:
    1) Recoverability (based on undiscounted cash flows)
    2) Loss measurement (uses fair value, or discounted cash flows if fair value is not known)

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Quiz Review Timeline (Updated): Mar 21, 2023 +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • May 27, 2012
    Quiz Created by
    Jenningsc2

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